x Abu Dhabi, UAEFriday 28 July 2017

Quarantined dollars will make a costly bonfire

The US Federal Reserve's latest entry in the well-stocked pantheon of governmental blunders might not be the most harmful of the bunch, but it must be among the most embarrassing.

Gary Clement for The National
Gary Clement for The National

And you think you have money problems.

Well, did you hear about the recent goof by the US Federal Reserve, the latest entry in the well-stocked pantheon of governmental blunders? It might not be the most harmful of the bunch, but it must be among the most embarrassing.

What happened is that the Fed spent more than a decade making over the US$100 bill, coming up with a snazzy new look for the greenback complete with a 3D security strip and colour-shifting images that were designed to make it nearly impossible for counterfeiters to create phonies.

The problem is that the legitimate printing presses were not equipped for the new currency either, except no one realised this one small snafu until after they had spit out more than one billion bills. It seems that some of the papers were creased during production, creating a blank space on the paper and rendering them unusable. It is hard not to wonder how it was not caught earlier - like after, say, the first million or two rolled off the presses.

Memo to future historians looking for the perfect metaphor showing the US government's inability to lift the economy out of recession: you can now call off the hunt.

The total value of the contaminated bills: about $110 billion (Dh404bn), or more than 10 per cent of the entire US cash supply. The funky money is now "quarantined", according to US media, and will eventually be burnt. That is one costly bonfire.

I wonder if they are looking for any assistance. I would be happy to pitch in and take a few bricks of bills - preferably the less badly damaged ones - on the promise that I would only use them as kindling. I've always been partial to wood smoke over charcoal, but I would love to see how a burger tastes after being grilled over a bed of smouldering $100 bills.

Maybe the US Fed should enlist the help of the Taiwanese authorities. In what in any other month would have qualified as the most bizarre currency-related news story around, a man turned to the police after he accidentally dropped a bag holding about $6,600 in cash into his factory's shredder. It turns out that Taiwan's justice ministry employs a forensic scientist who specialises in jigsaw puzzles and she was able to piece the bills back together over about seven days to the government standard of three-quarter completeness. Even more strange: a ministry official told Reuters the agency gets about 250 cases each year in which it is asked to repair damaged notes.

The US should run its bad bills through the shredder and then hire the jigsaw queen to put them back together in a fashion that minimises the damage. They could give Taiwan a cut of the action. It should only take a millennium or two to finish.

Thus far, no one has been sacked in connection with the US gaffe. Two Chilean officials were not so lucky this year. They got the boot after their national mint produced a line of 50-peso coins with the name of the country spelt with two I's and no L. Anyone can make a mistake.

Remember when currency was just paper and coins we used to buy and sell stuff? Perhaps that is just my American sensibility, given that most Yanks could historically ignore currency fluctuations unless they were expats or world travellers, but it sure seems like people are talking about currency more often these days. Like dotcom stocks in the late 1990s or home values in the mid-2000s, currency seems to be the one economic topic that everyone is following.

In the UAE, the issue is hardly a laughing matter given the vast volumes of remittances that get shipped out of the country each month. There are continuing rumblings about whether the dirham should be de-pegged from the dollar, as well as whether a Gulf monetary union makes more or less sense given recent economic events. If they do move forward on the latter, here's hoping they at least splurge for a spell checker.

In any other year, the media may well have ignored the $100-bill boondoggle in the US, but it happened to come just after the Fed's decision to buy $600bn in Treasury bonds, a move conservative critics derided as merely "printing money" in a desperate attempt to stimulate the economy. Leaving aside the hypocrisy of the right wing's howls about the deficit and the sound arguments that additional stimulus is needed to keep the economy from getting even uglier, the incident confirmed the suspicions in some quarters that the government could mess up a one-car funeral.

The discussion is bound to only get louder with the recent Republican appointment of Ron Paul as the chairman of the congressional subcommittee that oversees the Fed. Mr Paul is nothing if not outspoken. A physician by trade, the committed libertarian has for years been a lonely voice arguing that the US should stop trying to regulate monetary policy and instead return to the gold standard. The title of his 2009 book? End the Fed.



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